Washington -LRB- CNN -RRB- -- Democrats and Republicans narrowly averted a partial shutdown of the federal government Friday night , agreeing on a budget deal and a short-term funding extension little more than an hour before the clock struck midnight and time ran out .

The new funding extension , which cuts spending by $ 2 billion , will last through next Thursday .

`` The government will be open for business , '' President Barack Obama said .

`` In the final hours before our government would have been forced to shut down , leaders in both parties reached an agreement that will allow our small businesses to get the loans they need , our families to get the mortgages they applied for , and hundreds of thousands of Americans to show up at work and take home their paychecks on time . ''

Negotiators capped days of frantic closed-door talks and public recriminations by agreeing on a framework for a package of $ 38.5 billion in spending cuts covering the rest of the fiscal year , which expires September 30 .

Republicans , bolstered by their capture of the House of Representatives in last November 's midterm elections , had initially pushed for $ 61 billion in cuts .

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A GOP push to strip $ 317 million in federal funding from Planned Parenthood failed . Democrats also turned back Republican attempts to get federal dollars currently set aside for family planning and women 's health turned into block grants for states .

Such a move would have given governors and state legislatures more ability to cut funding for services opposed by conservatives .

Sources told CNN , however , that leaders of the Democratic-controlled Senate agreed to hold separate votes on both measures , as well as on an initiative to repeal President Barack Obama 's health care overhaul .

Lessons learned from past shutdowns

Obama praised the agreement , calling the cuts `` painful '' but necessary to secure the country 's economic future .

This `` is what the American people expect us to do , '' the president said at the White House . `` That 's why they sent us here . ''

`` This has been a lot of discussion and a long fight , '' said House Speaker John Boehner , R-Ohio . Republicans fought to `` create a better environment for job creators in our country . ''

Senate Majority Leader Harry Reid , D-Nevada , called the deal `` difficult but important for the country . ''

Nevertheless , the furious down-to-the-wire talks portend even tougher rounds of negotiations when Congress takes up an increase in the nation 's debt ceiling and the fiscal year 2012 budget in the months ahead .

If the negotiations had failed , approximately 800,000 government workers would have been furloughed . A range of government services would have come to halt .

Obama noted earlier in the week that the mechanism of shutting down government operations had already started . An inability to reach a deal would have hurt federal workers , people who rely on government services and the nation 's broader economic recovery , he warned .

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`` For us to go backwards because Washington could n't get its act together is unacceptable , '' the president said .

Top aides on both sides of the aisle had seemed increasingly resigned to the prospect of a shutdown . Congressional staffers began receiving their furlough notices Thursday afternoon .

Friday 's agreement to slash $ 38.5 billion in spending comes on top of two previous funding extensions that included $ 10 billion in cuts .

Republicans , under pressure from the conservative Tea Party movement to reduce the size of government , blame Democrats for failing to pass a fiscal year 2011 budget last year when they controlled both the Senate and the House . They also say Obama and his party are ignoring the peril of rising federal deficits and the national debt .

Democrats call the $ 61 billion in cuts initially pushed by the Republicans extreme , and argue reductions of that scale would have harmed the economic recovery while damaging education and innovation programs essential for continued growth .

The budget brinkmanship showed the political stakes of the situation , with both parties trying to depict the other as unwilling to do what 's right for the country .

It also demonstrated the cavernous gap between the two parties on social issues .

Democrats said the Republican drive to defund Planned Parenthood proves the GOP is fixated on abortion and other issues related to women 's health . Republicans repeatedly insisted that the size of spending reductions was the main cause of the dispute in recent days .

CNN 's Dana Bash , Deirdre Walsh , Ted Barrett , John King , Kate Bolduan , Brianna Keilar , Terry Frieden , Ed Henry and Dan Lothian contributed to this report .

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NEW : A temporary measure will keep the government funded through next Thursday

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NEW : The deal calls for $ 38.5 billion in spending cuts

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NEW : Obama calls the cuts `` painful '' but necessary